Oil and Gas Exploration and Production AD's (BUL:NGAZ) 37% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/ERatio

Oil and Gas Exploration and Production AD (BUL:NGAZ) shares have had a horrible month, losing 37% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 51% loss during that time.

In spite of the heavy fall in price, there still wouldn't be many who think Oil and Gas Exploration and Production AD's price-to-earnings (or "P/E") ratio of 10.4x is worth a mention when the median P/E in Bulgaria is similar at about 11x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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For instance, Oil and Gas Exploration and Production AD's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Oil and Gas Exploration and Production AD

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Oil and Gas Exploration and Production AD's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The P/E?

The only time you'd be comfortable seeing a P/E like Oil and Gas Exploration and Production AD's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 15% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 21% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Oil and Gas Exploration and Production AD's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

Following Oil and Gas Exploration and Production AD's share price tumble, its P/E is now hanging on to the median market P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Oil and Gas Exploration and Production AD currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Oil and Gas Exploration and Production AD (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.